Marzetti Co Q1 FY2021 Earnings Call

Good morning. My name is Joanne, and I'll be your conference call facilitator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation Fiscal Year 2021 First Quarter Conference Call. Conducting today's call will be Dave Ciesinski, President and CEO; and Tom Pigott, CFO. Operator instructions were provided.

Thank you, Joanne. Good morning, everyone, and thank you for joining us today for Lancaster Colony's Fiscal Year 2021 First Quarter Conference Call. Our discussion this morning may include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC. Also note that the audio replay of this call will be archived and available at our company's website, lancastercolony.com, later this afternoon. For today's call, Dave Ciesinski, our President and CEO, will begin with the business update and highlights for the quarter. Tom Pigott, our CFO, will then provide an overview of the financial results. Dave will then share some comments regarding our current outlook and strategy. At the conclusion of our prepared remarks, we'll be happy to respond to any of your questions. Once again, we appreciate your participation this morning. I'll now turn the call over to Lancaster Colony's President and CEO, Dave Ciesinski. Dave?

Thanks, Dale, and good morning, everyone. It's a pleasure to be here with you today as we review our first quarter results for fiscal year 2021. I'd like to begin by extending a sincere thank you to the entire Lancaster Colony team for their tremendous effort during the past eight months as we confronted the impact of the COVID-19 pandemic. From the frontline workers at our plants and distribution centers to all the associates and leaders throughout our business, I'm extremely proud of how we pulled together and worked in common cause to meet the shifting demands of our business. Throughout the coronavirus, we've remained steadfast that our mission is fixed: first, to provide for the health, safety and welfare of our teammates; and second, to ensure that we continue to play our role in our country's vital food supply chain. Despite the uncertainty, we completed our fiscal first quarter with consolidated net sales growth of 3.6%. Net sales in our Retail segment grew 16.6%, while net sales in our Foodservice segment declined 9%. Excluding Omni Baking sales, consolidated net sales grew 5.2%, and Foodservice net sales declined 6.4%. Retail net sales benefited from higher demand as the impact of COVID-19 drove higher at-home food consumption. Frozen garlic bread, Olive Garden dressings and frozen dinner rolls were the biggest contributors to the increase in retail net sales. Based on IRI data, consumption during the period outpaced shipments in a few categories. We are already seeing shipments catch up as we move through our second quarter. Per IRI, notable highlights for the quarter include the following. Sales of Marzetti refrigerated salad dressings grew over 12%. New York Bakery frozen garlic bread grew almost 15%. Branded croutons advanced over 21%. Sister Schubert's frozen dinner rolls increased 24.5%, and Olive Garden dressings grew a very strong 45%. We were also pleased to see that our recent new product introductions added about 4 percentage points to our Retail segment's Q1 sales growth as the Chick-fil-A and Buffalo Wild Wings sauces continued to perform very well. In late October, we began the long-anticipated regional rollout of Chick-fil-A sauces in the Southeast region. The news was officially announced on October 22 by our strategic partner, Chick-fil-A, on their social media platform, The Chicken Wire. By week's end, the news had garnered billions of media impressions. As previously outlined, we will be expanding distribution of these items across the United States during the remainder of our fiscal year. Overall, we were thrilled with the top line growth of our Retail business, and we're bullish about the long-term outlook. However, as you will hear later in my comments, this growth came at a substantial cost due to inefficiencies that are likely to persist in this pandemic environment. In our Foodservice segment, the upward trend from the lows we encountered this past April continued throughout the quarter. National account, quick service restaurants and pizza chain customers led the way. Despite the pandemic, we continue to partner closely with key national accounts on a range of new sauces that have and will continue to be featured on their menus in the weeks and months ahead. Despite the relatively strong top line results, consolidated gross profit for the quarter was essentially flat at $92.7 million versus $92.1 million last year. The benefits from the heavier retail sales mix were offset by the aforementioned higher manufacturing costs due to COVID-19, increased commodity cost and increased freight cost. As Tom will detail later in the call, the higher manufacturing costs consisted of both hard costs for items such as hazard pay, production gap costs and personal protective equipment and soft costs such as manufacturing inefficiencies resulting from our efforts to keep up with the increased demand and maintain adequate service levels. Before I pass it over to Tom, I would also like to briefly update you on our Bantam Bagels business. Late in Q1, we were notified by Starbucks that due to the impact of the coronavirus pandemic on their breakfast business, they were planning a range of menu changes, including the discontinuation of the Bantam line in their restaurants. As Tom will point out, this resulted in two noncash adjustments during the period. While we were disappointed by the decision, we remain pleased with the Bantam acquisition, and we're very bullish about its future. I'll now turn the call over to Tom Pigott, our CFO, for his commentary on our Q1 financial results.

Thanks, Dave. Overall, the results for the quarter reflected strong growth in our Retail segment, higher costs, primarily related to the COVID-19 outbreak as well as some accounting adjustments on the Bantam business. First quarter consolidated net sales increased 3.6% to $349.2 million. Excluding Omni Baking sales of $2.8 million in the current year quarter and $7.9 million in the prior year quarter, consolidated net sales increased by 5.2%. As you recall, Omni Baking sales are attributed to a temporary supply agreement. The supply agreement came to an end in late October as planned. Consolidated gross profit increased $0.5 million to $92.7 million, and margins declined by 80 basis points. The favorable revenue growth in the Retail segment was offset by higher manufacturing costs, including costs related to COVID-19 and higher commodity and distribution costs. The COVID-19-related items included about $4 million in incremental frontline worker pay and other hard costs of about $1.5 million for shift separations and expenditures for personal protective equipment as we invested to ensure for the safe operation of our facilities. We also incurred incremental soft costs totaling an estimated $3 million. These costs were driven by the increased demand and mix changes related to COVID-19. More specifically, these expenses included increased overtime pay, internal freight and distribution costs and utilization of some less efficient production lines to help meet demand. Note that compared to our fiscal fourth quarter ended June 30, total pounds produced increased more than 20%. Selling, general and administrative expenses increased $8.7 million or 22.2%. There were three main drivers of the increase. First was the investment we're making on Project Ascent in support of our ERP implementation and related initiatives, which accounted for $5.6 million of the increase. The remaining $3.1 million increase was driven by higher spending for digital marketing to attract and retain new customers as well as incremental IT infrastructure costs. The company recorded two special items this quarter related to the Bantam Bagels business as a result of the discontinuation Dave mentioned. First, we revalued the contingent consideration or earnout liability to the sellers of Bantam using fair value accounting. Based on this analysis, we reduced the current value of the projected earnout payment by $5.7 million, creating the income you see on the contingent consideration line of the P&L. Second, we evaluated the intangible assets of this business, which resulted in an impairment charge of $1.2 million. Both items were recorded in the Foodservice segment results. Consolidated operating income declined $2.8 million to $48.9 million. This result reflects the items I mentioned earlier, most notably the higher expenditures for Project Ascent and the unfavorable impacts of COVID-19, partially offset by the change in the earnout projection. Excluding all these items, the key driver of operating income growth was a strong top line performance in the Retail segment. Our effective tax rate was 24.3% this quarter versus a tax rate of 23.3% in the first quarter of fiscal 2020. We estimate that our tax rate for the remainder of fiscal 2021 to be 24%. First quarter diluted earnings per share decreased $0.13 to $1.35. The adjustment to contingent consideration increased earnings per share by $0.16. Higher expenditures for Project Ascent accounted for $0.15 of the decline. EPS was also impacted by the impairment charge, lower interest income on our cash holdings and the increase in the effective tax rate. With regard to capital expenditures, first quarter payments for property additions totaled $14.4 million. For fiscal year 2021, we are forecasting total capital expenditures between $70 million and $90 million based on plans currently in place. We are in the process of evaluating additional and potentially significant investments to meet the growing demand for our dressing and sauce products. These investments will be additive to this forecast. In addition to investing in our business, we also returned funds to shareholders. Our quarterly cash dividend paid on September 30 was $0.70 per share, an 8% increase over the prior year amount. Our long-standing streak of annual dividend increases reached 57 years last December. Even with the investments we are making and the increased dividend payments, our financial position remains very strong as we finished the quarter debt-free with $186 million of cash on the balance sheet. So to wrap up my commentary, this quarter reflected strong growth in our Retail segment and improving trends for the Foodservice segment. We continue to monitor and adjust to the impacts of the COVID-19 outbreak. But overall, the health of the business remains strong. I'll now turn it back over to Dave for his closing remarks. Thank you.

Thanks, Tom. As we look ahead, we will continue to leverage the combined strength of our team, our operating strategy and our balance sheet in support of the three simple pillars of our growth plan: first, to accelerate our base business growth; second, to simplify our supply chain to reduce our cost and grow our margins; and third, to identify and execute complementary M&A to grow our core. Our base business is expected to continue to grow in this difficult environment. Looking forward to our fiscal second quarter, historically, our biggest sales quarter of the year, sales for both our Retail and Foodservice segments will remain subject to the shifts in demand resulting from COVID-19. We expect our Retail segment sales will benefit from the continued growth of frozen bread products and dressings and sauces. The licensing platform, in particular, is poised to provide stronger growth in the second half as we expand distribution nationally on both Buffalo Wild Wings and Chick-fil-A sauces. In Foodservice, we anticipate our quick service restaurant and pizza chain customers will remain a positive for us. We foresee inflationary headwinds from commodity and freight costs for the remainder of the fiscal year. We also expect we'll continue to incur higher operating costs to keep up with the demand and maintain service levels in this challenging pandemic environment. We expect our cost savings programs and favorable net price realizations will help to partially offset these cost increases. Specific to our supply chain strategy, we're in the final stages of evaluating a significant investment in production capacity to address the increasing demand for our dressing and sauce products. We intend to have more to share with you on this in the future. Project Ascent, our ERP initiative, remains on track as we have now completed the design and build phases, and we are in the testing phase. We expect to continue our testing and preparation through the remainder of this fiscal year, followed by the commencement of the deployment phase in early fiscal 2022. In closing, I would like to once again thank the entire Lancaster Colony team for all that they have done during this quarter to fulfill our mission despite all the unprecedented challenges. This concludes our prepared remarks for today, and we'd be happy to answer any questions you may have. Joanne, over to you.

Operator instructions were provided. Your first question comes from the line of Brian Holland from D.A. Davidson & Co.

A few quick-hitting ones here. Can you give us an update on how much new products contributed in the quarter?

Yes. So it was four percentage points to the Retail business is what it did.

Okay. Sorry if I missed that when you commented.

No problem, Brian. Great question.

Pivoting over to... (question continued)

Just to give you an idea, we're biased a little bit heavier towards Buffalo Wild Wings as the Chick-fil-A sauce, for all intents and purposes, was really just isolated to Florida. And we didn't start to ship that into the Southeast region until the very end of October.

Okay. That's very helpful and good to know. And then just quickly on the Bantam business, a two-part question here. One, can you quantify the drag from the loss of Starbucks to revenues over the next 12 or so months as you lap this? And then kind of as we look across broader Foodservice, do you see risk of similar menu rationalization across the balance of your portfolio?

Well, I'll hit them maybe in sequence. I'll hit the second question first. We don't quite see anything quite like the Bantam item because most of what we're doing are key menu items that, if it's a sauce, it's usually helping to hero some sort of protein that's on the menu. For example, they're featuring some sort of a hamburger build or a chicken sandwich build, and our sauce would be central to that. We have seen them work to simplify what they're doing. We haven't seen a downside to that. Really, the bigger impact we're seeing in Foodservice is movement away from bulk packaging to portion control. So, case in point, if you look at our Cryovac business in Foodservice for the period, it was off probably to the tune of somewhere around 20%. But our portion control part of the business is very, very strong. So we're seeing those sort of things. But in this particular case, I think what's happened is, across all of Foodservice, the breakfast occasion has been hit particularly hard because people continue to work from home. So if you think about that morning routine, it continues to be impacted. And I think as Starbucks has watched their businesses evolve, they took the opportunity to step back and say, what needs to be true for us to simplify our breakfast assortment to make sure that we're running as efficiently as possible. The unfortunate thing is the velocity on the items in the stores that were open remain very, very strong. It was a decision that they've made. As far as the impact, I would prefer not to get into that. I would tell you that it was in the higher seven figures. It's probably the way I would categorize it. But I would flip that with we also have a real long pipeline of new opportunities that we're in the process of chasing. We had actually sort of tapped the brakes on chasing new opportunities just because of capacity limitations on that business. So that's why we remain really bullish about where it's going.

So in other words, it sounds like you have some degree of confidence that that lost capacity, if you will, can find another home there just based on customer interest that you had?

Yes, exactly. We have a strong team working against it. We have a strong pipeline of new product introductions, some of which are going to take us into occasions like snacking, like a pizza bite item. So there's a whole range of really exciting activity there and a team that's just fast and driving forward.

Okay. And then Dave, maybe just to get kind of your latest high-level Foodservice industry thoughts. I guess what's particularly noteworthy here, the second wave concerns with COVID-19. So maybe just kind of what you're seeing since quarter end, if we've seen a plateau in trend, any pullback, anything that you're looking at, one way or the other?

Yes. It's a great question, and I'll sort of hone you in on transaction data. If we look at really all transaction data, all national accounts for the months of August, September and October, those three months, they were running roughly down 10% on transactions. However, transaction sizes were bigger, so they weren't down as much. When you look at the QSR segment, the QSR segment was probably running down about 8.5%. The casual dining segment was actually doing quite well; it was probably running down around 10 to 11 points. Midscale is the segment that really continued to drag; they were having a harder time with off-premise dining solutions, and they were off in the mid-20s. Here's our thesis. We predicted there would be a spike. We believe it's the combined effect of colder weather in the Midwest and the Northeast and other parts of the country as people head indoors, combined with an overall COVID weariness where people are letting down their guard. We fully anticipate a spike in cases. What I think is likely to happen: the QSR segment has done a tremendous job of pivoting to solutions like drive-thru and delivery and pickup. I would be surprised if we saw their business pull back more than a couple of points. I think casual dining concepts like Buffalo Wild Wings and others have done a nice job of breaking the code on off-premise dining. The most severe impact is likely on mom-and-pop restaurants that haven't broken the code on off-premise dining. It's conceivable you could see schools shut in parts of the country, which might have an impact, although that's a tough one to forecast. Areas heavy into the breakfast occasion will be more impacted. Net across the industry, you're likely to see a couple of points of pullback biased against midscale and casual, with a lesser effect on QSR. On the Retail side, we're already starting to see a small uptick; I expect that to continue through November into December and then gradually work down as more stringent lockdowns occur state by state. Hopefully in spring, better therapeutics or a vaccine will help. We anticipate wrestling with this through the remainder of our fiscal year. I apologize for the long answer.

No, that was great. I appreciate the color. If I could just sneak in one more and then I'll hop out. Really just want to understand kind of, aside from the Bantam business update, the thing that stood out the most was the margin shortfall in the quarter. I think, Tom, you mentioned about $8.5 million of cost tied to COVID, some hard, some soft. If I pair that with your commentary, it sounds like we should expect a similar magnitude of headwind over at least until you start to lap some of that maybe around Q4. But what I want to make sure I understand is how big of an impact were commodities and freight? How much of an offset were you able to get there? I'm trying to dimensionalize what you were able to offset, what you couldn't offset. It also sounded like some of the margin pressure came from running hot on capacity constraints given what you have to do to maintain employee safety and facilities and the demand. If you could help us understand that because that's an issue near term but maybe a sign of underlying strength when you're running that hot, can you help clear that up?

Yes, that's a pretty good assessment. So the hard costs are things we're doing to run safely and to reward our employees for working during this difficult environment, and that was the $5.5 million or about 150 basis points of margin degradation. What we saw this quarter that we didn't really experience much in the fourth quarter were the soft costs. We're running the factories much harder to keep up with demand and producing a lot more pounds of product, which you can see in our inventory positioning. As we go into Q2, the hard costs will continue, and we do expect the soft costs to continue. Over time, we have actions in place to try to mitigate some of the soft costs. And over the longer term, as Dave mentioned, we are going to be making investments in capacity to drive margin growth.

Brian, I can illustrate it with an example. Tom mentioned that Q4 to Q1, our pounds in our factories were up 20%. That's a big increase. But that doesn't highlight the mix. We had parts of the business like Cryovac down about 20%, and then Olive Garden up 45%. We had a month where pounds were up 60% on that business. Those swings within our network are putting stress on operations. We're running bottled items in lines not optimized to run those to keep up with service levels and avoid fees. This was an extraordinary set of circumstances. We have an aggressive range of actions in place that we think will help begin to bend the curve on these items. We expect to see actions take effect late in Q2 and greater manifestations in Q3, particularly around increasing internal capacity and bringing online other co-packers.

Your next question comes from Todd Brooks from C.L. King & Associates.

Just a few questions for you. Looping back to some of that discussion that Brian kicked off on the gross profit side. In talking about a couple of line items that you called out as far as freight costs and some commodity inflation, can we get more color on the headwinds they created in the quarter? I know some commodities were seeing spiky behavior versus trend behavior. Where you're seeing pressure, is it more of a spiky nature due to COVID-19? Or is this trend behavior due to demand? And do you expect this will have a tail for multiple quarters?

Maybe I'll lead off with a quick answer and then I'll let Tom give you more texture. There's a big part of this that is related to COVID, and in particular, it's been driven by an imbalance in supply and demand for drivers. Since the outbreak of COVID, many trucking schools have either slowed down or shut down. As a result, there's a shortage of drivers. Intuitively, if you're a candidate who wants to learn to drive a truck, the last thing you want to do is climb in the cab with someone you don't know and spend a bunch of time on the road. We think that's going to resolve itself on the other side of the pandemic. Tom, if you want to dimensionalize...

Yes. So the freight costs were in the low seven-digit range, and commodity inflation was also in the low seven-digit range. On those items, our pricing program is working. We did dial back trade spending to offset the impact. So looking at the quarter, the primary degradation on margins was really the COVID hard and soft costs.

Okay. Fair enough. And then if we think about SG&A excluding the ERP costs, and it looks like if you back out Omni from both quarters, we were up about 30 basis points year-over-year in the fourth quarter. Thoughts on the other drivers of SG&A, digital marketing spend, incremental IT infrastructure costs? If you're looking at this expense line, how does the roughly 11.5% experience in the first quarter compare to what you're expecting over the balance of the year?

So yes, when you take out the Project Ascent costs, we're up 9% in the quarter. The investment in consumer and digital marketing to attract and retain new customers is working; the IRI metrics suggest success in attracting and retaining new customers to our Retail franchise, which will benefit us long term. That investment will continue into the remaining quarters of the year. The IT infrastructure costs are investments to shore up infrastructure and cybersecurity. We expect some mitigation toward the second half of the year. Overall, we expect the first half of the year to be heavier than the second half in the level of increases.

Okay. Great. And then finally, if we can loop back around to Chick-fil-A, you talked about the Southeastern region rollout that started at the end of October. As you guys are getting your minds around dimensionalizing the opportunity here, can you talk about the institutional capability to handle this magnitude of a potential launch, either experience that was brought from other launches of this magnitude or expectations for what you need to build internally to handle this size opportunity? And within the inventory growth in the quarter, was part of the $25 million of inventory growth building towards this Chick-fil-A launch in the upcoming fiscal quarter?

The answer to the inventory question is yes. Part of it was preparing for that launch, and part of it was a seasonal build. As we go into our second quarter with items like Chick-fil-A and other bread products, seasonally we see more consumption, so that was deliberate. Regarding infrastructure and people, our team consists of many veterans from big CPG firms. I spent many years at Kraft and Heinz. The person who leads our Retail business is a P&G veteran. Our Head of Sales was a 25-year Kraft veteran, and we have many CPG veterans throughout our supply chain. We feel very good about the team. On infrastructure, we highlighted that we're in the late stages of evaluating a capacity expansion project tied specifically to these items and to Foodservice Chick-fil-A business growth. We had initiated and approved the project but tactically paused when COVID broke out. Given the outlook on Chick-fil-A and Buffalo Wild Wings, we're reinitiating that project. That will create a bridge between today and where we'll be once other capacity comes online. We'll utilize co-packers and get more throughput through existing lines. We have one new line internally that will start production in January, and we have initiatives to speed up throughput on existing lines by changing fillers and similar actions, also coming in January. We plan to combine those with co-packers. We've also been deliberate about throttling demand. If we had gone national immediately, it could have overwhelmed our supply. That's why we elected to do a test market in the Southeast, calibrate holding power on shelves with our partners, and then roll out regionally—Southeast to Midwest to Northeast and then out West. This allows us to match supply and demand. We have a detailed plan to bring online capacity and manage demand smartly.

Your next question comes from the line of Ryan Bell from Consumer Edge Research.

Great. You said that the impact on a full-year basis for Bantam, given the Starbucks discontinuation, is something in the seven figures. You also implied it's reasonable to believe that the Bantam business should find a new home from some of the existing interactions you've had within Foodservice. Is there anything we should think about in terms of potential timing broadly and potentially the magnitude of the replacement of the demand that had been lost due to the Starbucks discontinuation?

I'm not sure if I follow the question.

I think in terms of the outlook on Starbucks, it's a little premature for us to give a specific flow in terms of how things will come back. As Dave mentioned, there's a good pipeline of initiatives and products. The discontinuation occurs toward the end of the calendar year, and we will definitely feel it in the near term. But longer term, we feel good about the outlook for that business.

I would say the impact will be felt as we're bringing online a lot of growth from our licensed products as we expand that capacity. As you think about it, it's really Q2 and Q3 when we're starting to see the impact of those licenses expand. I don't think it's going to be a material impact in the period because of the other growth we're bringing online.

Okay. That was very helpful. Could you provide a little context about the Foodservice industry with respect to meal occasion exposure? Breakfast is obviously weaker. Is there any way you could talk about how the occasion mix is impacting your business overall?

Absolutely. Historically, breakfast was a big occasion, and lunch was a big occasion. Post-COVID, breakfast has been most severely impacted, while dinner occasions have grown. Transactions have trended down in many places. People are less likely to stop at a coffee shop on the way to work, and instead they're ordering from drive-thru and buying for groups. Breakfast is the occasion most severely impacted. We don't play very heavily in breakfast. Our products—garlic bread, garlic sticks, dinner rolls, yeast rolls, Parker House rolls, and dressings and sauces—tend to play more heavily at lunch and dinner. Where we have exposure in breakfast: Bantam at Starbucks and Chick-fil-A, where we make an item. Chick-fil-A's breakfast business has resumed growing again, albeit not at the same rate as before, but comps are positive on breakfast. So the occasion shift is unlikely to result in a material impact to our business because of the products we supply today.

And one more. Would you discuss your positioning in Foodservice relative to key competitors? The robust performance in Retail has helped offset softer Foodservice trends. Could you comment on potential impacts competitors might be experiencing and what that might mean for capital allocation decisions?

If you focus on dressings and sauces, about two-thirds of our business is in national accounts, and a much smaller percentage is in branded or local business. Within national accounts, more than 60% is tied to QSR. So our Foodservice center of gravity is QSR and pizza QSR—names like Chick-fil-A, Taco Bell, Domino's, Papa John's. We've done well partnering R&D to R&D with these customers. Even in a COVID environment, one of our strategic QSR customers is visiting this Friday for menu development with us, and another worked with us over Teams last week. Many competitors play more in commodity products like mayonnaise or mustard, with less customization, or they are more heavily developed in branded channels like K-12, higher education, health care, smaller restaurants, and entertainment venues. Our bias toward national accounts and QSR, and our way of partnering with them, is a differentiator. Customers view us as a partner to create signature items, not just a commodity provider.

Your next question comes from the line of Todd Brooks from C.L. King & Associates. (There are no further questions from other lines at this time.)

Just one follow-up. If you talk about the work needed to launch a product of the magnitude of Chick-fil-A while simultaneously launching Buffalo Wild Wings single-serve sauces or single-bottle sauces, can you talk about the front end of your licensed product pipeline? Are new partners approaching you and willing to engage? With proper lead times, can you add meaningful products to this roster of licensed products that's about to expand? Have you created capacity to start working with new partners in the front end of the process?

Generally, this starts with a long-standing Foodservice relationship and partnership. They have confidence in our R&D and supply chain. When we introduce retail licensing, it's a Foodservice and Retail joint effort. If the Foodservice customer is interested, we discuss items, dimensionalize the opportunity, and negotiate licenses. One unique aspect of our license model: the products we sell in Retail are the exact same formula as what we sell in Foodservice. For example, Buffalo Wild Wings sauces are the same formula, and Olive Garden dressings are the same. That yields supply chain efficiencies. Once packaging is designed, we order change parts for facilities and begin conversations with customers. Customers often get excited for brands and move quickly. We work with customers to determine shelf facings and design end-to-end supply chains to scale sequentially. Often the partner helps announce the item and promote it in their restaurants. Chick-fil-A is offering bottled products in restaurants and will sell a three-pack during the holidays, helping sell in retail. As we evolve the model, more existing Foodservice customers are coming to us to explore these opportunities. We're gating these opportunities to ensure we can service growth and do it well. We believe in going slow to go fast; we want to be deliberate with these partnerships.

If I take the process you described, is this an 18-month start-to-finish timeline? Or what's that window? For Chick-fil-A and Buffalo Wild Wings being at the tail end of the process, have you created capacity to start working with new partners in the front end of the process?

One of the more recent ones took 18 months. You could probably do it faster depending on how big the item is. Chick-fil-A discussions started mid-2019, the pilot ran, and we announced it. We've been calibrating based on the pilot and rolling out in the region. A year would be very fast; 18 months is a reasonable pace to ensure you can keep up with the item.

There are no further questions. We will now turn the call back over to Mr. Ciesinski for his concluding comments.

Thank you, Joanne, and thank you, everyone, for your participation this morning. We look forward to sharing our second quarter results with you in early February. In the meantime, we wish all of you happy holidays and that you keep safe, and that your families keep safe. We look forward to joining you on the next call here soon. Take care.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.